"Afghanistan also agreed to allow Pakistan traders to seek routes to central Asia along Afghan roads." — File Photo

KABUL: A deal to open new export markets for Afghan products, by creating a tax-free transit corridor to India through Pakistan, is lopsided and may cement Islamabad's resented grip on the Afghan economy, traders and officials say.

The US-sponsored transit agreement which comes into effect next year allows Afghan trucks to drive tax free across Pakistan up to the Indian border with products for sale there — but they cannot load up with Indian exports for the return journey.

Instead, Afghan traders must buy products made in or shipped into Pakistan; ensuring Pakistani merchants do not lose their foothold in a market worth billions of dollars in annual sales.

“We couldn't insist on bringing Indian goods to the country from Pakistan's border or they would not have been interested in signing it,” said Mozamel Shinware, head of International Trade in the Ministry of Commerce.

Afghanistan also agreed to allow Pakistan traders to seek routes to central Asia along Afghan roads, Shinware said.

The long-awaited agreement has been in the pipeline for months and was hammered out with help from the United States, which is keen to try and wean Afghanistan off billions of dollars in foreign aid by boosting economic growth.

Afghanistan's total worldwide exports were only $400 million last year, and according to Afghanistan's Chamber of Commerce around half of that were sales of fruit and carpets to India.

“Pakistan charges a 35 percent tax on Afghanistan exports to Pakistan itself, but transit is now free,” said Chamber of Commerce deputy head Khan Jan Alokozai.

However the trucks will have to stock up with Pakistani goods for their return journey. And importing Indian goods via sea is very costly, often more than twice as expensive as overland transport, sources at the commerce ministry say.

“Pakistan was very cautious about signing this contract, thinking about its revenues first and foremost,” said Afghan finance ministry spokesman Aziz Shams.

“We get 10 per cent of the benefits from the contract, and Pakistan gets 90 percent of the benefits,” he said.

Afghanistan is the largest buyer of Pakistan goods ranging from food items to construction materials, worth $4 billion a year, Shams added.

Islamabad says Afghanistan is the country's third biggest market, although it put trade at $1.45 billion for the 11 months from July 2009. The difference may be due to smuggling.

Uneasy partners

The trade deal should provide a significant new outlet for Afghan goods as the Kabul government and its foreign partners struggle to rebuild an economy crippled by decades of war.

India is a relatively short truck journey away and in 2003 signed a preferential trade agreement with Kabul, one of only two such bilateral deals Delhi has agreed.

A strengthening insurgency and weak infrastructure have meant Afghans are still heavily dependent on foreign aid.

Unemployment runs at around 40 percent, and economists and businessmen say lack of jobs makes it easier for militants to recruit fighters to their ranks, so creating businesses and finding markets for Afghan goods is an urgent concern.

But landlocked Afghanistan is dependent on its neighbours for access to markets, and its small manufacturing base means it also relies on them for imports.

This has created widespread resentment of the grip Pakistan in particular has on the country's economy. This comes on top of the common perception that Islamabad has contributed to decades of violence and insecurity by supporting insurgent groups.

“Pakistan only sends poor quality and unhealthy things, without any controls imposed by the Afghan government,” said Rahim Khan, a shopkeeper in Afghanistan whose general store is packed with goods from his unloved neighbour.

“This agreement is totally to the advantage of Pakistan.

They should allow Afghan traders to bring Indian goods into the country, why are we forced to just use Pakistani products?”